Developments so far this week
A number of factors combined to give the oil markets a weaker tone in the past three days. The “satisfactory” start to the Iranian nuclear talks served to lower tensions in the Middle East – at least for the time being. The release of weaker-than-expected Chinese economic data and an unsatisfactory Spanish bond auction served to increase worries that the EU and China are in for a period of lower growth. When the US stocks report on Wednesday showed an unexpectedly large increase of 3.8 million barrels of crude, NY oil fell to a close of $102.67. Brent closed Wednesday at $117.94, the lowest close in two months.

Traders are saying that the reversal of the Seaway pipeline on or about May 17th could have a significant impact on the energy markets. The reversal will reduce at least some of the oil glut that has been building up at the Cushing, Okla. oil depot by moving it to refineries along the Gulf Coast where it will reduce the demand for higher priced imports of Brent-priced crudes.

While the weekly stocks report also showed unexpectedly large drops in gasoline and distillate inventories of 3.6 and 2.9 million barrels respectively, the markets ignored this development and focused on the build in crude stocks. The IEA reported last week that global crude stocks are building for the first time in many months as increased OPEC production combines with lower demand induced by high prices.

US gasoline futures have fallen by 15 cents a gallon in the last four days helped by the falling price of Brent crude which is down by about $8 a barrel since the beginning of April. Fears about a refining shortage on the US East Coast this summer appear to be on hold for the minute as Delta Airlines is thought to be in negotiations to buy and restart a Sunoco refinery in the Philadelphia area.

Natural gas prices continued the steady slide that began in January and are again below $2 per million BTUs. President Obama has signed an Executive Order directing the establishment of a “super committee” that will oversee the regulation and development of the shale gas industry. Cheniere Energy received federal approval to construct the first major natural gas liquefaction facility in the US that would permit the export of LNG. While several other companies have filed for similar permits, some are beginning to say that the US should keep the gas for domestic consumption rather than exporting it.

Although there is optimism that the talks over Iran’s nuclear program will eventually lead to some sort of a settlement, the embargo is still in place and Israel continues to rattle its sabers. The Israelis are upset that the next round of meetings will not take place until late May and are warning that they will not stand by while Tehran gains the time to move its nuclear facilities underground. To back up this concern, the government permitted Israeli TV to air a program showing Israeli war planes practicing for attacks on Iranian nuclear facilities.